We're Equity Finance specialists
Equity finance for property development raising capital for developers by selling ownership interests, known as equity or shares, to investors.
We help secure equity finance for property development in the UK from the whole of market including investors, private equity firms, venture capitalists and angel investors.
Our Equity Finance service
- Market-leading equity finance up to £250m
- £500k+ equity requirement
- Typically, projects require 30%+ profit on cost
- Experienced developers only
- No debt required which provides greater flexibility
- Borrower retains full control of the project
- Allows for increased capital injection into project without full equity investment
- Complex structures - offshore and non-UK residents
- All UK and certain EU jurisdictions considered
- Upscale and run multiple projects
- All asset classes considered
A comprehensive guide to Equity Finance
Equity finance is a method of raising capital for property development by selling ownership interests, known as equity or shares, to investors. In this guide, we will delve into the concept of equity finance, its characteristics and features, how it works, who uses it, when it can be used, and the benefits of its use.
Contents
What is Equity Finance?
Equity finance refers to the process of raising funds for a business by selling shares of ownership to investors.
Unlike debt finance, which involves borrowing money that must be repaid with interest, equity finance does not create a debt obligation. Instead, investors become partial owners of the business and share in its profits and losses.
Characteristics and features of Equity Finance
Ownership: Investors who provide equity finance become shareholders and hold a proportionate ownership stake in the company.
Profit-Sharing: Shareholders are entitled to a share in the profits generated by the business, typically in the form of dividends.
Risk and Reward: Equity finance involves sharing both the risks and rewards of the business. If the company performs well, shareholders benefit from increased value and potential capital gains.
Voting Rights: Equity holders often have voting rights, enabling them to participate in corporate decisions, such as electing the board of directors or approving major business decisions.
No Fixed Repayment: Unlike debt finance, equity finance does not require regular interest or principal repayments. Investors recoup their investment through dividends or the sale of shares.
How Equity Finance works
The process of equity finance typically involves the following steps:
Business Valuation: The company determines its overall value, often through the assessment of its assets, revenue, market position, and growth potential.
Equity Offering: The company offers a certain percentage of ownership through shares to potential investors.
Investor Selection: Investors evaluate the business's prospects and decide whether to invest based on factors such as the company's financial health, growth potential, and industry outlook.
Investment and Share Issuance: Investors provide the agreed-upon capital, and the company issues shares representing the ownership stake.
Ongoing Relationship: Shareholders become part of the company's ownership structure, participating in profit-sharing, decision-making, and receiving updates on the business's performance.
Who uses Equity Finance?
Equity finance is used by a range of businesses across various stages of development:
Startups and Early-stage Companies: Equity finance is a popular choice for startups and early-stage companies seeking capital to fund their growth and development.
High-growth Companies: Businesses with significant growth potential often turn to equity finance to finance expansion plans, research and development, or market penetration.
Established Companies: Even established companies may opt for equity finance to fund acquisitions, diversification, or to strengthen their balance sheets.
Publicly Listed Companies: Publicly traded companies can raise equity finance by issuing additional shares to the public through secondary offerings.
When to use Equity Finance
Equity finance can be used in various scenarios:
Insufficient Collateral: Businesses with limited assets or collateral may find it challenging to secure debt financing. Equity finance provides an alternative by leveraging the company's future potential.
Long-term Capital Needs: If a business requires funding for long-term projects or growth initiatives, equity finance can be an attractive option as there is no fixed repayment schedule.
Industry Volatility: In industries with high uncertainty or cyclicality, equity finance can be beneficial as it does not involve fixed interest payments that can strain cash flows during lean periods.
Benefits of using Equity Finance
No Debt Obligations: Equity finance does not create debt obligations, reducing financial risk and preserving cash flow for other business needs.
Access to Expertise: Investors providing equity finance often bring valuable industry knowledge, experience, and networks, which can benefit the company beyond capital infusion.
Flexible Repayment: Equity finance eliminates the need for regular interest or principal repayments, allowing businesses to allocate capital toward growth and operational needs.
Shared Risk: Equity finance shares the business risks with investors, aligning their interests and potentially attracting long-term investors committed to the company's success.
Potential for Growth: Successful equity financing can provide businesses with the necessary capital to accelerate growth, expand operations, enter new markets, or develop innovative products and services.
Example of a property development scenario using Equity financing
An Equity based property development scenario may involve a group of investors coming together to fund the purchase of a high potential, undeveloped piece of land in a desirable location.
The investors agree to form an Investment Management Company (IMC) that will have the responsibility of developing the land. The IMC will be registered as an LTD and each investor agrees to contribute an equal amount of capital to the venture.
The IMC will also recruit a development firm to complete the necessary engineering work, planning, and other services required to submit the site plans to the local planning office for approval. The development firm will be paid a fixed fee for their services, as well as a percentage of the profits if the project is successful.
Once the site plan is approved, the IMC will obtain a loan from a bank in order to fund the construction process. The investors agree to provide the bank with a portion of their capital as collateral in order to secure the loan.
The development firm will then be contracted to oversee the construction process and upon completion, will be paid a fixed fee for their services, as well as a percentage of the profits.
If the development project is successful, the IMC will receive a portion of the profits as well as the equity that was invested in the project. The investors will then be able to either reinvest the equity capital or withdraw it, depending on their agreement.
This is an example of a property development scenario where Equity financing was used. Through this scenario, the investors, together with the IMC, were able to execute a successful land development project without having to relinquish any control over the project. Furthermore, the investors were able to benefit from the project’s profits, providing them with a lucrative return on their investment.
Conclusion
Equity finance is a powerful tool for raising capital and fuelling growth for businesses of all sizes. By selling ownership shares to investors, companies can access funds without creating debt obligations.
Equity finance offers flexibility, shared risk, access to expertise, and the potential for substantial growth. Understanding the characteristics, features, and benefits of equity finance empowers businesses to make informed decisions about their financing options and embark on successful ventures.
Remember, before making any financial decisions, it is advisable to consult with qualified professionals such as accountants, lawyers, and financial advisors who can provide tailored guidance based on your specific circumstances.
Disclaimer: This guide is intended for informational purposes only and should not be considered as financial or legal advice. Borrowers should consult with qualified professionals and conduct thorough due diligence before pursuing Joint Venture Finance or any other financing options.
We're experienced financial experts who can help you arrange Equity Finance.
Call our professional team on 01202 612934, we're ready to help.
